Open Access Article

Unmasking the Dynamics: Drivers of the Shadow Economy in SAARC Countries

Authors

Abdul Saboor(1) Abdul Saboor Affiliation Research Scholar, School of Economics, Bahauddin Zakariya University, Multan, Pakistan Other articles by this author , Muhammad Ramzan Sheikh(2) Muhammad Ramzan Sheikh Corresponding author Affiliation Professor of Economics, School of Economics, Bahauddin Zakariya University, Multan, Pakistan Email addressramzansheikh@bzu.edu.pk Other articles by this author

  1. Research Scholar, School of Economics, Bahauddin Zakariya University, Multan, Pakistan
  2. Professor of Economics, School of Economics, Bahauddin Zakariya University, Multan, Pakistan

https://doi.org/10.36923/jcmi.v5i1.569

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Abstract

The study aims to investigate the determinants of the shadow economy in SAARC countries during the period from 1995 to 2021. The study uses three proxies for the shadow economy as dependent variables, which are the ratio of reserve to narrow money (Shadow-1), the ratio of narrow to broad money (Shadow-2), and the ratio of currency in circulation to broad money (Shadow-3), while trade, tax, unemployment, government final consumption expenditure (GFCE), governance index (GI), and economic freedom index (EFI) are used as independent variables. The study applies the second-generation panel unit root test and the method of moments-quantile regression (MM-QR) technique. The findings of the study are that, as theoretically expected, the independent variables, trade, tax, unemployment, and government final consumption expenditure (GFCE), have positive and significant coefficients, while the governance index (GI) and economic freedom index (EFI) have a negative and significant effect on the shadow economy in SAARC countries. The study suggests that economic freedom and governance quality should be improved, and government size, tax, and unemployment should be decreased to control the shadow economy in SAARC countries.

Article information

Keywords
shadow economyunemploymenttaxtradegovernanceeconomic freedomMM-QR analysis
Section
Articles
Issue
Vol. 5 No. 1 (2024)
Submitted
January 20, 2024
Accepted
May 15, 2024
Published
June 14, 2024
Corresponding author
Muhammad Ramzan Sheikh
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